Market Turmoil Fuels Gold Rush

Gold futures climbed above $1,700 an ounce Monday as investors eyed the precious metal as a safe haven from declining stock markets. i i

Gold futures climbed above $1,700 an ounce Monday as investors eyed the precious metal as a safe haven from declining stock markets. David McNew/Getty Images hide caption

itoggle caption David McNew/Getty Images
Gold futures climbed above $1,700 an ounce Monday as investors eyed the precious metal as a safe haven from declining stock markets.

Gold futures climbed above $1,700 an ounce Monday as investors eyed the precious metal as a safe haven from declining stock markets.

David McNew/Getty Images

The stock markets may be sinking, but the price of gold is on the rise, topping $1,700 an ounce Monday. Economists say the spike in gold is a sign that investors are getting nervous.

Ken Rogoff, an economics professor at Harvard University, says gold is kind of like an economic mood ring: When the price is relatively stable, the economy is cool, calm and collected.

But when the price of gold soars to levels like Monday's high, it's a sign of panic, he says. "People are scared right now," he says.

Rogoff says investors turn to gold as a safe haven when other forms of investment — like stocks, Treasury bills and even cold hard cash — become unpredictable.

And that increased demand from gold investors drives up prices.

"For a very rich individual or a very rich sovereign wealth fund, buying gold is the equivalent of stuffing cash under a mattress," he says.

Fueling The Rush

And those mattresses are getting bulkier as all signs point to continuing uncertainty about the economy.

Rogoff says Standard & Poor's downgrade Friday of the U.S. government's credit rating has helped to fuel this latest gold rush.

"Foreign central banks hold trillions of dollars in Treasury bills and cash," Rogoff says. "And they're looking at each other now and saying, 'Wait a second. Uh, Treasury bills are only AA+ now? They don't get a triple A, the highest rating?' "

Which makes buying gold coins and gold bullion that much more alluring.

"If we're ever invaded by aliens, I don't know if they would take gold. But almost everyone else will," he says.

Including people like Brian Diener, who owns a jewelry store in Washington, D.C., where he sells rings, diamonds, fine crystal, silver and, of course, gold.

"That will never stop — always gold," he says.

Diener has a wooden box he keeps in the back room of his store filled with gold necklaces and bracelets that he's bought from estate sales and other sellers.

He estimates all the jewelry is worth about $200,000.

Climbing Prices

Gold prices have been climbing since the recession began in 2008, and Monday's price of more than $1,700 an ounce is a record high if you don't adjust for inflation.

The all-time high was set in 1980 when gold — in today's dollars — hit more than $2,400.

Still, Diener says the recent rise in prices has brought in more customers eager to sell their gold and cash in.

"I just have to be more on top of what the price of gold is daily," he says. "Buying and selling it, and melting some gold, so you can have enough cash or money to buy more."

And now is the time to buy, he says.

"The bubble will burst one day. I don't see it in the near future," he says.

And Harvard's Rogoff predicts that the near future could be in a couple of years.

But he says he's wouldn't be surprised if gold prices hit $2,000 an ounce before they plummet back down below $1,000.

In the meantime, Rogoff says investors are hoping gold will keep its glitter.

Prices of gold from 1977 to today

Notes

The latest price in this chart reflects the London gold market's Monday afternoon fixing price. Gold soared $61.40, or 3.7 percent, to settle at $1,713.20 in New York trading.

Related NPR Stories

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.